Is the West Being Taken Over by the Rest?

Renowned British economic historian Niall Ferguson in his new and dazzling history of Western ideas, Civilization: The West and the Rest, argues as his central thesis that the West developed six killer “apps”—referring to the popular software applications for smartphones and tablets—that caused the West to dominate the global stage for the last 500 years. These key institutions and complexes of ideas, such as “competition,” “property rights,” “the Work Ethic,” were what led the West to preside (relatively unchallenged) over global politics, economics, and culture, despite the fact that the civilizations of the Orient were much more advanced than Western Europe in the 1400s, which was plagued by disease and war. Over time, however, the West has become, as Ferguson puts it, a “template” for the Rest (i.e. non-Western countries), which have been copying (or downloading) the apps and are now on the verge of overtaking the West in terms of economic strength and size, led by China.

Professor Ferguson presented his book and findings at a well-attended launch event at the Bank last week, which I had the honor to moderate. What do Professor Ferguson’s arguments mean for developing countries?

First, Ferguson says that these “apps” have always been open source, and that much of the catching up that has happened over the past is due to developing countries “downloading” the apps and integrating them into their way of functioning (starting with Japan). Currently, a number of leading developing countries are already practicing to various degrees all six components (such as India and Brazil).

Second, institutions and ideas are the drivers of economic change, and it is increasingly evident that the West no longer holds a monopoly on good institutions or on knowledge generation. The World Bank Group is already acutely aware of this, and through its Open Data, Open Knowledge, Open Solutions initiative and Robert Zoellick’s path-breaking speech at Georgetown University in September 2010, as well as its increasing partnership and engagement with universities, think tanks, and research institutes in developing countries, is striving to both disseminate its research, data, and analysis more broadly and harness and improve local knowledge building.

Third, Ferguson’s “apps” are not bound by culture—any country can benefit from applying the ideas and concepts behind the apps, particularly the rule of law. When asked if developing countries are producing their own unique apps to fit their own purposes, Ferguson argued that the six apps outlined in Civilization were the most essential and that developing countries do not need to develop “extra” apps. The puzzle then becomes: Can a country assume a leading role and challenge the current global dominance by the U.S. and Europe without downloading all the six apps? China is poised to make a serious attempt.

Niall Ferguson’s Six Killer Apps

Competition: A decentralization of both political and economic life, which created the launch-pad for both nation-states and capitalism.

Science: A way of studying, understanding and ultimately changing the natural world, which have given the West (among other things) a major military advantage over the Rest.

Property rights: The rule of law as a means of protecting private owners and peacefully resolving disputes between them, which formed the basis for the most stable form of representative government.

Medicine: A branch of science that allowed a major improvement in health and life expectancy, beginning in Western societies, but also in their colonies.

The consumer society: A mode of material living in which the production and purchase of clothing and other consumer goods play a central economic role, and without which the Industrial Revolution would have been unsustainable.

The work ethic: A moral framework and mode of activity derivable from (among other sources) Protestant Christianity, which provides the glue for holding together the dynamic and potentially unstable societies created by the above apps 1 to 5.

In economic terms, China is likely overtake the U.S. in terms of size of its economy in the next decade or so. With the rise of China, the potential for the dual hegemony could also prove to have implications for the future of the international monetary system, especially the dominance of the U.S. dollar as a reserve currency. With the dollar and the euro increasingly unattractive as reserve currencies due to the uncertain domestic fiscal positions in the U.S. and several EU members, and with China is experimenting with making the renminbi a more convertible currency internationally, there may be a space developing for the renminbi and perhaps other currencies to challenge the dollar’s central role in the next decade or two. Ferguson argues, however, that the impact of a more international renminbi would be slow to materialize since reserve currencies are hard to uproot since transactions become path dependent, but agreed that there will likely be a bigger role other currencies.

In today’s multi-polar global economic landscape, global growth will increasingly come from developing countries and regional growth poles, rather than emanating solely from the West. Developing countries have emerged as a strong demand pole for the global economy. They now account for about 28 percent of world GDP at market exchange rates and 45 percent at purchasing power parity. With developing countries growing much faster than high-income countries, their share in global growth was about one-half in 2010 (at market exchange rates). Ferguson warns, however, that past experiments with a dual hegemony system (with the U.S. and Britain) were turbulent and that the U.S. strategic response to the growing influence of China on the international stage to date has been uncertain.

In his closing, Ferguson praised the World Bank’s Open Data coverage and the World Development Indicators, but challenged the Bank to expand its ample coverage of the quality of institutions to include developed countries to allow for more global comparisons, especially regarding efficiency, private property rights, and the ease of starting a business. I thought this was a great idea, particularly as the lines dividing advanced and emerging economies becomes more blurred.

Even though not every reader might agree with Professor Ferguson’s neo-conservative political view point, his well-written book is packed with valuable historic and economic information and should be required reading for anyone who is interested in knowing how a few relatively small countries in Western Europe came to dominate the rest of the world for the last five centuries.

In my view the author could have emphasized three vital and essentially positive points to indicate more clearly the major opportunities and challenges ahead. First, with the increasingly even access to knowledge and technology across the world, the global scene is likely to be dominated in the coming decades by large and populous developing countries, starting with China and India, and within each region by new regional powers, such as Brazil, Indonesia, Iran, Nigeria, Russia, and Turkey as they establish their position as new growth poles.

Second, as these new growth poles begin to catch up with today’s advanced countries in terms of standard of living, they are likely to experience massive reductions in poverty and malnutrition, as well as a rapidly growing middle-class, which should benefit the rest of the world through their rising demand for goods and services.

Finally, as Professor Ferguson is well aware, a smooth transition to this new multi-polar world is not assured. The current global governance system is not prepared to deal with the new challenges of the ongoing economic and geopolitical shifts. And history has shown that ignoring this geopolitical context can lead the economic forecaster awry. World War I arose out of some combination of European nationalism, new and misunderstood warfare technologies, the changes in the balance of power that left the world without an active and powerful keeper of the peace, undemocratic political institutions in major emerging powers, and their poor policy choices. Many thought it was going to be a relatively short and minor war. The Great Depression arose from a severe shock to the U.S. economy that was exacerbated and propagated worldwide due to poor monetary institutions, poor policy choices, and an unprepared financial system.

In the long-run, however, the forces pushing worldwide economic integration forward dominated the adverse impact of political shocks, like wars and revolutions. Globalization recovered powerfully after World War II. And yet, to prevent the West from destroying its own civilization, as it came close to doing several times, domestic and international institutions were built that have allowed globalization to flourish in an environment of relative global peace. These institutions are now badly in need of modernization to take into account this new, brave, multi-polar world.